When should a lease-versus-purchase analysis compare the cost of leasing to the cost of owning?

Question

Quizplus · Accepted Answer

When conducting a lease-versus-purchase analysis, it is best to compare the cost of leasing to the cost of owning when assuming that the asset purchased is financed with debt whose maturity matches the term of the lease. This is because the financing terms should be the same for both options in order to make a fair comparison between them. If the asset is financed with short-term debt or retained earnings, it would not be an apples-to-apples comparison. If it is financed with long-term debt, the interest rates and other terms may not be similar to the lease terms, leading to an inaccurate analysis.

When Should a Lease-Versus-Purchase Analysis Compare the Cost of Leasing